Monday, March 26, 2012

Report Critical of Handling REO from CU Failures

NCUA's Inspector General (IG) issued a report critical of the Asset Management Assistance Center's (AMAC) handling of properties associated with the failures of Norlarco and Huron River Area Credit Unions.

The IG report found that AMAC management's analysis was not sufficiently comprehensive to support its decision to hold onto the properties. Specifically, the IG found deficiencies over the valuation process of real estate owned (REO). AMAC did not perform valuations on these properties in accordance with industry standards and did not always maintain proper support for the valuations that were completed. In addition, the IG determined AMAC did not formally complete a cost to carry analysis on REO.

The IG report determined that AMAC management estimated they could manage the loans at a cost of 59 percent of members’ value. However, when factoring in known expenses to carry the properties, the estimated cost to manage the loans is reduced to 33.8 percent. This 33.8 percent does not take into account vandalism, theft, and outside contractor expenses, which would further reduce this recovery percentage.

The IG report noted that AMAC has sold 409 of the approximately 850 properties originally taken over as a result of the liquidation of Norlarco and Huron. As of June 30, 2011, AMAC has sold 409 properties for a total of $41.0 million. These properties had an estimated member value of $95.8 million, which resulted in AMAC realizing 42.8 percent of the member’s value based on sales figures alone, but does not factor in expenses incurred for the properties sold.

The IG report estimated that NCUA should recognize 28.7 percent net realization on all properties obtained through liquidation of Norlarco and Huron River credit unions.

About Me

Dr. Keith Leggett is retired from the American Bankers Association, where he was a Senior Vice President & Senior Economist. He is a leading expert on credit unions and the National Credit Union Administration.

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